North Dakota Crop Land Values and Rents

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1 North Dakota Crop Land Values and Rents Lake Region Roundup January 8-9, 2013 Devils Lake, North Dakota Andrew Swenson Extension Farm Management Specialist Department of Agribusiness and Applied Economics North Dakota State University

2 40% Annual Percent Change in N.D. Farm Real Estate Value 30% 20% 10% 0% % -20%

3 N.D. Land Values USDA Farm RE (inc.bldg) USDA Crop Land June Survey NDASS Crop Land Jan. Co. Survey* Jan June Jan 500 June Jan 555 June Jan 612 June Jan 661 June Jan 798 June Jan 926 June Jan 975 June Jan 1,165 June 980 1, Jan 1,372 June 1,240 1,350 *Note: State averages are from county values weighted by crop land acreage.

4 N.D. Cropland Values in Nominal Dollars 1,600 1,400 1,200 1,

5 N.D. Cropland Values in Nominal and Constant (2012) Dollars 1,600 1,400 1,200 Inflation Adjusted 1,

6 NDSU Crop Budget Regions Renville Divide Burke Bottineau Rolette Cavalier Pembina Towner NW NC NE NV Williams Walsh Ramsey Mountrail McHenry Ward Pierce Benson Nelson Grand Forks McKenzie McLean Eddy Sheridan Wells Foster Griggs Steele Traill Dunn Mercer Billings Oliver EC SV Golden Burleigh Kidder Stutsman Barnes Cass Valley Stark Morton SW SC SE Slope Hettinger Logan La Moure Ransom Grant Emmons Richland Bowman Adams Sioux McIntosh Dickey Sargent

7 North Dakota Cropland Values by Region North Valley South Valley South East

8 North Dakota Cropland Values by Region North Central North East East Central

9 North Dakota Cropland Values by Region North West South West South Central

10 What Factors Affect Land Values? Land Buyers Producers Investors Recreators Considerations Ability to pay Projected profitability Interest rates Tax Policy (Section 1031 & Capital gains tax) Psychology (outlook, attitude)

11 Profitability (Price x Yield) + Gov t Paymts - Costs In recent years many N.D. crop producers have experienced very strong revenue. However, costs have risen dramatically.

12 North Dakota Marketing Year Average Price: Range and Years Year Spring Wheat Soybean Corn

13 Range of North Dakota Marketing Year Average Prices for and Spring Wheat Soybeans Corn

14 North Dakota Spring Wheat Yields,

15 North Dakota Corn Yields,

16 North Dakota Soybean Yields,

17 $/ton $/bu U.S. Urea and Corn Prices, April (March prices for ) Urea Corn

18 Spring Wheat Costs per Acre ND Farm Business Management, Excluding RRV Gross Return Overhead Cash Rent Other Direct Repair Fuel Fertilizer Chemical Seed

19 Soybean Costs per Acre ND Farm Business Management, Excluding RRV $400 $350 $300 $250 $200 $150 $100 $50 $ Gross Return Overhead Cash Rent Other Direct Repair Fuel Fertilizer Chemical Seed

20 Corn Costs per Acre ND Farm Business Management, Excluding RRV $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $ Gross Return Overhead Cash Rent Other Direct Repair Fuel Fertilizer Chemical Seed

21 Land, a) what can we afford to pay, and b) what is it worth?

22 Land Purchase Cashflow Requirements $2,000 Land Price 65% Percent Debt $1,300 Land Debt 20 Term of Loan (years) 5.5% Interest Rate $7.00 Real Estate Tax =$ Loan payment & RE Tax Land Loan P&I plus RE Tax, at Various Purchase Prices and Interest Rates, assuming 65% Debt, 20 Year Term and $7 RE Tax. Land Purchase Price $1,000 $1,500 $2,000 $2,500 $3,000 $3, % % % % %

23 2013 Projected Northeast ND Budgets Wheat Soybean Corn Per Acre Per Acre Per Acre Market Yield Market Price (updated) Market Income $ $ $ Direct Payment Total Income $ $ $ DIRECT COSTS Seed Herbicides Fungicides Insecticides Fertilizer Crop Insurance Fuel & Lubrication Repairs Drying Miscellaneous Operating Interest Sum of Listed Direct Costs $ $ $ INDIRECT COSTS Misc Overhead Machinery Depreciation Machinery Investment Labor & Management Charge Sum of Listed Indirect Costs $79.05 $81.89 $99.97 Sum of all Listed Costs $ $ $ RETURN to LAND and RISK $81.05 $87.37 $97.42 Percent of Rotation 50% 40% 10% WEIGHTED RETURN to LAND and RISK $85.21

24 Capitalization Rate = Annual Net Income/Total Value Total Value = Annual Net Income/Capitalization Rate

25 What is Land Worth? Land Values at Different Annual Net Returns and Capitalization Rates Annual Net Returns $25 $35 $45 $55 $65 $75 2.0% 1,250 1,750 2,250 2,750 3,250 3, % 1,000 1,400 1,800 2,200 2,600 3, % 833 1,167 1,500 1,833 2,167 2, % 714 1,000 1,286 1,571 1,857 2, % ,125 1,375 1,625 1,875

26 $3,000 Land Values at Various Capitalization Rates and Net Returns to Land (cash rent RE tax) $2,750 $2,500 $2,250 $2,000 $1, $1,500 $1,250 $1,000 $750 $45 Return after RE tax $30 Return after RE tax $500

27 Two points of caution Past results are no guarantee of future performance. Many don t realize, or are in denial of, the impact of potential cuts in farm program subsidies.

28 Potential Impact on Land Values from Reductions in Gov't Payments Capitalization Loss of Direct Gov't Payment per Acre Rate $5 $7 $9 $11 $ % % % % %

29 What is a fair cash rent?

30 110 North Dakota Crop Rents by Region North West North Central North East North Valley South Valley South West

31 $/Acre 70 Ramsey County Cropland Cash Rent National Agricultural Statistics Service, North Dakota Office Minimum Reported Maximum Reported Average

32 2013 Projected Northeast ND Budgets Wheat Soybean Corn Per Acre Per Acre Per Acre Market Yield Market Price (updated) Market Income $ $ $ Direct Payment Total Income $ $ $ DIRECT COSTS Seed Herbicides Fungicides Insecticides Fertilizer Crop Insurance Fuel & Lubrication Repairs Drying Miscellaneous Operating Interest Sum of Listed Direct Costs $ $ $ INDIRECT COSTS Misc Overhead Machinery Depreciation Machinery Investment Labor & Management Charge Sum of Listed Indirect Costs $79.05 $81.89 $99.97 Sum of all Listed Costs $ $ $ RETURN to LAND and RISK $81.05 $87.37 $97.42 Percent of Rotation 50% 40% 10% WEIGHTED RETURN to LAND and RISK $85.21

33 ND Crop Price Outlook if Big Crop and Weak Economy Spring Wheat 7.00 (range ) Soybeans (range ) Corn 4.25 (range )

34 North Dakota Pasture Values per Acre State Avg McKenzie Mountrail Burleigh Adams

35 $/Acre 40 Ramsey County Pasture Cash Rent National Agricultural Statistics Service, North Dakota Office Minimum Reported Maximum Reported Average

36 NDSU Projected Crop Budgets Crop Compare ND Farm Business Management Education Program reports North Dakota Land Values and Rents ex.asp